Wed 27 Jun 2018 View all news articles
Your mortgage is likely to be your biggest financial commitment. According the Money Charity, the average outstanding mortgage in the UK is now £121,678 – the first time it has risen over £120,000.
When taking on a large mortgage, it’s only natural that you will have plenty of queries. Here are 10 questions that you should ask your mortgage lender before you take out a new home loan.
Will you lend to me?
Your first question to a lender should be to establish whether they will lend to you.
Every mortgage lender has different underwriting criteria, so you should check that they are going to be able to consider your application. Factors that will affect whether a lender will agree your home loan include:
Your employment status (are you employed or self-employed?)
Your outgoings, including regular commitments
Your credit history
The type of property that you want to buy.
For example, you might earn a large proportion of your income through bonuses or commission, which is something not every lender will look at favourably. Perhaps you have only been self-employed for a short time? Or perhaps you’re buying an unusual property?
What deposit do you need?
Figures from the Halifax showed that the average first-time buyer deposit in the first half of 2017 was £32,899 – around 16% of the purchase price.
When you speak to a mortgage lender you will need to establish how much deposit they need. Most lenders require a minimum of 5% of the purchase price, although others may need more than this.
The size of your deposit will also affect the range of mortgage deals that are available to you. Generally, the bigger your deposit, the better the choice of deals and the lower the interest rate you will pay.
What deals do you have available?
Ask your lender what choice of mortgage products they have available. You will typically have a choice of:
Fixed rates – these guarantee your mortgage repayments for a fixed period, typically 2, 3, 5 or 10 years. Your repayments won’t change irrespective of what happens to general interest rates.
Tracker rates – these rates are linked to the Bank of England Base rate. Your interest rate and repayments will go up or down as the Base rate changes.
Variable rates – Your mortgage will be linked to your lender’s Standard Variable Rate (SVR). Your lender can change their SVR whenever they wish, and so your payments can rise and fall.
In addition, your lender might offer other products such as offset or current account mortgages. Always find out what deals you can choose from, and get advice on the right type of rate for you.
What happens to my mortgage when my fixed or tracker rate deal ends?
If you take a fixed, tracker or variable rate deal then you should find out what happens to your mortgage rate when this deal ends.
Your mortgage may revert to the lender’s Standard Variable Rate, or your lender might be able to offer you another deal once your initial product expires.
What fees and charges are there?
According to Moneyfacts, the average mortgage arrangement fee today stands at £998. Different fixed, tracker and variable rates have different arrangement fees and so you should take all fees into account when you choose a deal.
In addition to a product/arrangement fee, there will be other charges. These may include:
A valuation fee
A booking fee
Telegraphic transfer fees
Closing fees when you repay your mortgage.
Make sure you ask your lender exactly what fees and charges you will pay.
What documents will you need to agree my mortgage?
A lender will need a range of documents in order to agree your mortgage. These range from proof of your earnings to ID that proves your identity.
Ask your lender what documents they need as you may need to obtain these from your employer, accountant or bank. Typically, you will need:
Proof of income, such as payslips, a P60, accounts or tax returns
Bank statements for the last 3 – 6 months
Proof of identity and address, such as a passport, driving licence, or utility bills in your name.
How long will it take for you to produce a mortgage offer?
Your mortgage lender may have some great deals and may be able to agree the loan that you need. However, you should also check if they can produce your mortgage offer quickly.
There’s no point going with a lender that offers a low interest rate if delays in processing mean you lose the property you are buying. Always establish how quickly you can expect to receive your mortgage offer, especially if you need to move fast or you’re competing for the home you want to buy.
Do I have to take out any insurance?
Mortgage lenders always want to ensure that their security (the property) is protected and so you’ll have to take out buildings insurance as a condition of your mortgage. If you’re buying a flat then this may be included in your service charge or other fee.
Your lender may also require you to take out further insurance. You may have to demonstrate that you have enough life cover to repay the mortgage in the event of your death, or your lender may want you to consider contents insurance to protect your possessions.
Ask your mortgage lender what insurances are available.
Are there any penalties if I pay off the mortgage early?
If you take out a fixed, discounted or tracker rate mortgage then there will often be ‘early repayment charges’ (ERCs) associated with such a deal. This is a charge that you will pay if you want to repay part or all of your mortgage within the initial rate period.
Ask your lender what penalties there are if you want to repay your loan early. And, check whether your mortgage rate is ‘portable’ so you can transfer it onto a new property if you move home within the tracker or fixed rate period.
Can I overpay?
Ask your mortgage lender whether you’re able to make any overpayments to your mortgage.
Most lenders will allow you to pay off up to 10% of your mortgage balance each year without incurring a charge. Others offer flexible or offset options where you can overpay whenever you want to.
If you want the option of being able to overpay, make sure your lender offers this flexibility and that you won’t be penalised for doing so.
Source: What House?
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